Manning a ghost ship: Tax court allows undischarged bankrupt to obtain trustee consent for previously commenced appeal

In Paul L. Schnier v. Her Majesty the Queen,[1]  the Tax Court of Canada (TCC) dismissed a motion to quash an appeal brought on the basis that the appellant did not, as an undischarged bankrupt, have the capacity, pursuant to Section 71 of the Bankruptcy and Insolvency Act, to deal with property, including the ability to bring an appeal. The Appellant believed he was required to file the appeal, but did not obtain the trustee in bankruptcy’s permission when he commenced the appeal. Instead, the appellant sought the Trustee’s consent after the appeal had been commenced. The Trustee sent a letter to the Canada Revenue Agency (CRA) stating that the appellant’s filing of the appeal was the “correct thing to do” and that the Trustee “authorizes and gives permission to [the bankrupt] to pursue the appeal, nunc pro tunc”.

The TCC exercised its broad discretion to find that an undischarged bankrupt can gain legal capacity to bring an appeal by obtaining from the Trustee an after-the-fact expression of prior consent or permission to continue the appeal.

This decision provides a basis for an undischarged bankrupt to remedy a lack of capacity to bring and pursue an appeal. While the ultimate decision to quash an appeal remains with the TCC, in our view, counsel for the CRA at the Department of Justice would likely continue to challenge the capacity of undischarged bankrupts in the future. Consequently, it is strongly advisable that an undischarged bankrupt take steps to obtain the Trustee’s explicit consent and approval before or as soon as possible after an appeal is commenced, to minimize the risk of having an appeal quashed for lack of capacity.